Underlying climate related changes are making it challenging to predict storm dynamics; as some of those changes are becoming more evident, the likelihood of loss causing storms has also increased, according to new research by Lockton Re.
Lockton’s reinsurance business has recently launched a new research series focused on the hurricane peril, including tropical cyclone and typhoon patterns, impacts to climates that could alter the nature of this peril. As well as Lockton Re’s view of storm trends and their potential development.
This first part is titled Storm Dynamics and The Reinsurance Industry – Exploring Hurricane, Tropical Cyclone, and Typhoon Patterns and Trends.
As the climate changes, the impacts felt by the re/insurance industry will be altered based on how the corresponding peril(s) responds. Tropical cyclones, which includes hurricanes, is one of these.
The Intergovernmental Panel on Climate Change (IPCC) has found that it is likely that the global proportion of Major (Category 3-5) tropical cyclones has increased over the last four decades.
As the intensity of these storms increases, so does the potential for insured losses. Since 2017, tropical cyclone insured losses have exceeded $600 billion.
Hurricane Ian was the costliest of all the storms in 2022, with an estimated $113.1 billion in damages caused throughout its path which impacted Venezuela, Colombia, Trinidad and Tobago, the Greater Antilles, and the Southeastern United States.
“We’re seeing an uptick in the strength of these storms. Take the 2022 hurricane season, which was average in terms of hurricane activity in the North Atlantic, yet it was the third costliest on record,” noted Cheryl Fanelli, Global Head of Catastrophe Modelling for Lockton Re.
Like 2022, the 2023 hurricane season is also being called an “average” year for the Atlantic Basin. 11-15 named storms, 4-8 hurricanes, and 1-3 major hurricanes have been predicted; with the highest chance for direct/significant impacts in Florida/ Carolinas, and the lowest chance over the Western Gulf of Mexico and Northeastern US.
Warm waters could lead to one or two storms being very strong/intense, Lockton Re’s analysts highlight.
The issue is that “underlying climate related changes are making it challenging to predict storm dynamics,” as Claude Yoder, Global Head of Analytics for Lockton Re, commented.
Adding: “Past focus on frequency and severity of storms may have missed more fundamental global climate changes. Some of those changes are becoming more evident as the likelihood of loss causing storms has increased.
“Wind speed alone is no longer a good predictor of damages. As climate change has increased precipitation and made storm surge more likely, even lower categorised storms (as a function of wind speed), can create material loss.”
Lockton Re’s three additional follow-up publications will explore the industry’s exposure to hurricanes and the fast-changing nature of home and building structures and their ability to withstand storms; a unique view of comprehensive risk transfer option creation; and how placement techniques are trending and improving within the property re/insurance market.